Growth of aid to Africa

Given the financial crisis and its severe impact on government budgets in donor countries, global ODA volumes decreased slightly, from USD 121.5 billion in 2008 to USD 120 billion in 2009. Despite this drop, 2009 ODA represents a higher share of DAC members’ combined gross national income owing to the economic contraction in DAC-member economies: ODA was 0.31% in 2009 compared to 0.30% in 2008.⁶ These numbers, however, understate the important increase in core development funding. If debt relief⁷ and humanitarian aid are excluded, bilateral aid for development programmes and projects rose by 8.5% in real terms. This continues a strong trend over recent years.

At the Gleneagles G8 and Millennium +5 summits in 2005, donors made specific commitments to increase their aid. When quantified by the OECD Secretariat, the pledges implied lifting aid from around USD 80 billion in 2004 to nearly USD 130 billion in 2010. At constant 2004 prices, these pledges represent 0.36% of estimated gross national income (GNI) in 2010. The OECD now estimates that the recent economic contraction has, by cutting nominal GNI, reduced the value of the commitments made for 2010 to around USD 126 billion (in constant 2004 USD), or USD 46 billion over the 2004 level. Donors are estimated⁸ to have delivered USD 108 billion in 2010, falling short of the Gleneagles target by USD 18 billion (in 2004 USD).

Nevertheless, the increase in aid since 2004 is significant: USD 28 billion (2004 USD) over the 2004 baseline, with the ODA/GNI ratio rising over the same period from 0.26% to an estimated 0.32%. This is the largest volume increase ever in ODA over such a period and does not depend on the large increase in debt relief that boosted the aid numbers in 2005‑07. The continued growth in ODA has shown that aid pledges are effective when backed up with adequate resources, political will and firm multi-year spending plans. ODA will continue to rise in 2010, unlike other financial flows to developing countries, which have fallen sharply since the onset of the global financial crisis.

As for other categories of international financial flows, new players are entering into development assistance, offering additional financial resources and new ways of engaging with Africa. Development assistance funding from the 23 members of the OECD’s DAC account for about 90% of global aid flows, roughly based on the DAC method of accounting. The total gross development assistance flows from countries beyond the DAC has been estimated at USD 12 billion in 2009. China’s development assistance is estimated at USD 2 billion to USD 3 billion, Russia’s at USD 800 million, India’s at USD 500 million, Brazil’s at USD 360 million, and South Africa’s at USD 100 million (Smith and Zimmermann, forthcoming).

ODA to Africa has been rising steadily over the last decade, from USD 15 billion in 2000 to USD 30 billion in 2004 and to USD 48 billion in 2009. Despite this increase, donors risk failing to meet their Gleneagles commitments made in 2005. In real terms (2004 USD, the basis for the Gleneagles commitments), overall ODA to Africa in 2009 was USD 38 billion, and an estimated USD 42 billion in 2010,⁹ USD 13 billion (or 24%) short of the target.

Net bilateral ODA from DAC donors to Africa totalled USD 28 billion in 2009, of which USD 25 billion went to sub‑Saharan Africa. This number represents an increase of 3% in real terms over 2008 for all of Africa and an increase of 5.1% for sub‑Saharan Africa.

DAC data indicate that humanitarian aid decreased slightly, from USD 5.5 billion in 2008 to USD 5.2 billion in 2009. Bilateral debt relief doubled, from USD 2 billion in 2008 to USD 4 billion in 2009. The other ODA flows increased and reached USD 38 billion in 2009 from USD 36 billion in 2008. All are shown in Figure 2.4.

One country offering additional financial resources is China, whose co-operation with Africa has grown rapidly. At the fourth Forums for China-Africa Co-operation (FOCAC), held in November 2009, China pledged to provide USD 10 billion in concessional loans to African countries. China also pledged USD 1 billion in special loans for small and medium-sized African enterprises. India also promised help to Africa, pledging, at the First India-Africa Forum Summit in 2008, to provide USD 5.4 billion in loans and USD 500 million in grants to the continent over the five to six following years. Major initiatives include the Pan-African e-Network Project, the Techno-Economic Approach for Africa-India Movement (TEAM 9) and the Special Commonwealth African Assistance Programme (SCAAP).

In addition to aid from China and India, South Africa’s development co-operation amounted to USD 108.7 million in the 2009/10 fiscal year. Almost all of South Africa’s development co-operation is directed at the African continent, with a strong focus on member countries of the Southern African Development Community (SADC). The biggest among the Arab donors, Saudi Arabia provided Africa with USD 5.5 billion in gross ODA in 2008. The Saudi Fund for Development finances investment projects through concessional loans, targeted at transportation and energy infrastructure (60%), agriculture (18%) and social sectors (13%). Of these loans, 28% are directed at countries in sub‑Saharan Africa.

Focusing on pure development assistance in line with DAC’s ODA definition¹⁰ misses the full picture of financial flows directed at development between Africa and other developing countries. The development finance that emerging economies supply to Africa comes largely in modalities different from those which traditional partners provide. Under the framework of aid effectiveness, DAC donors have spent the last decade putting in practice a number of strict rules separating development assistance from other forms of economic co-operation such as trade and investment. “Tied” aid, development assistance funds that were linked to products and services from the donating country, has been largely phased out, aiming to promote fair competition for aid contracts and ensure value for money (2001 OECD/DAC Recommendation on Untying Official Development Assistance and 2008 Accra Agenda for Action). Developing country partners, on the other hand, pursue a different strategy, one that combines commercial with developmental interests and financing modalities.

For example, export credits do not fall within the ODA definition, but they play an increasingly large role in relations between Africa and its developing country partners. The sum of all export credits from China in 2006 reached close to USD 1.2 billion. In the case of India, export credits went up from USD 50 million in 2004 to USD 89 million in 2010 (Chanana, 2009). Emerging partners also use what is called “mixed credits”, i.e. a financing package that combines concessional rate and market rate loans (Brautigam, 2010a). For China, Brautigam (2010b) estimates an annual average of USD 7.1 billion of such financing over the period 2007‑09. This estimate is much higher than the DAC’s USD 1.9 billion estimate for 2009, which accounts only for concessional finance. Part II of this report provides an in-depth discussion of Africa’s emerging partners and their expanding interactions with Africa, including both FDI and development assistance from emerging partners.